Ashtead Group (LSE: AHT) is the best performing FTSE 100 share of the last two decades and continues to smash the index. Despite this, it rarely appears on lists of the most traded UK stocks. It should.
I wonder if private investors overlook the equipment rental specialist due to lack of name recognition, like other business-to-business operations such as Bunzl or Smurfit Kappa. It’s easier to buy a Barclays or BP.
I’ve actually been aware of its fantastic track record for some years, but never bought as I thought I’d missed the boat. Yet it’s continued to fly.
It just keeps climbing
If I’d invested a £5,000 lump in Ashtead’s shares 20 years ago, I would have £2.28m today, according to figures calculated for me by online investment platform AJ Bell. That’s an unbelievable 41,408% total return, with dividends reinvested.
In June 2003, Ashtead shares would have cost me around 13p each. Today, I’d pay £53.96p. This shows the fantastic benefits of long-term investing. And grabbing a penny share when it’s still worth, well, pennies.
Ashtead shares continue to beat the FTSE 100. They’re up 127% over the last five years, against a drop of 1.22% on the index as a whole. Over one year, they’re up 50.28%, against 6.55% on the index. Plus another 12.61% in the last month alone (the index fell 2.35%).
A big reason for Ashtead’s success is that it generates 80% of its revenues from the US, via subsidiary Sunbelt Rentals. Dollar strength makes Ashtead’s revenues worth relatively more when converted back into sterling.
It’s now benefiting from the Biden administration’s $1trn US infrastructure bill, by hiring out the picks and shovels required to get the work done. As well as diggers, cranes, drills, scaffolding, pumps, ventilation systems and much more. It’s cheaper and easier for companies to rent than purchase costly kit themselves.
I didn’t buy Ashtead 20 years ago, but should I buy today? The first thing to say is that with a market-cap of £22.5bn, it isn’t going to grow another 40,000%.
It should do well though. Last week it reported a record full-year performance, with adjusted pre-tax profit up 26% to $2.27bn. US revenues grew 24% to $9.67bn, compared to UK growth of just 6% to £429m (which tells a story in itself).
I’ll buy first chance I get
CEO Brendan Horgan is looking to the future “with confidence”, with momentum enhanced by all those US mega projects.
Given Ashtead’s long-term success, I’m surprised to see it trading at ‘just’ 17.85 times earnings. The latest yield was just 1.2%, but covered 4.6 times by earnings, offering scope for growth. Management has also spent $1bn buying its own shares over the past two years and now plans to buy back a further $500m.
Ashtead is gearing up to invest a hefty $4.4bn keeping up with the latest kit, and capital expenditure will eat into profits. Another worry is that the US may fall into a recession, which would hit customer demand and the dollar. I’m also terrified of piling in just as the great Ashtead growth story comes to an end.
Yet I want this FTSE 100 growth stock more than any other, and will buy it on any dip. I may have to be patient. There haven’t been many.
